question archive Using the information provided in Appendix 7, calculate the weighted average cost of capital (WACC) for the competitor plc
Using the information provided in Appendix 7, calculate the weighted average cost of capital (WACC) for the competitor plc
Subject:AccountingPrice: Bought3
- Using the information provided in Appendix 7, calculate the weighted average cost of capital (WACC) for the competitor plc.
- b.Discuss the problems that may arise in comparing the WACC calculated in part (a) with the standard 10% rate used by the Fusion Group on large-scale investments.
Appendix 7: Weighted Average Cost of Capital
Fusion is looking to compare its weighted average cost of capital with competitors in the market place. You have been provided with the following comparator information following an analysis conducted of a competitor which is a publicly quoted company.
| Number of authorised ordinary shares | 100,000,000 |
| Number of issued ordinary shares | 50,000,000 |
| Nominal value of ordinary share | £1 |
| Beta | 1.5 |
| Retained earnings | £550,000,000 |
| Current share market price | £15.50 |
| Closing balance of loan debt on balance sheet | £465,000,000 |
| Market risk premium | 6% |
| Risk free rate | 2% |
| Credit risk premium | 5% |
The corporate tax rate is 20%.
